Reply to Noah on The Case Against Education

By Bryan Caplan

But
Caplan misapplies the theory of signaling. First of all, he says that
it represents “wasted resources.” In signaling models, the resources
that people spend proving themselves aren’t wasted — they’re
an economically efficient way of overcoming the natural problem of
asymmetric information.

Signaling can be economically efficient under auspicious circumstances. But even in an unregulated market, signaling has a clear negative externality: When you signal a little more, you make yourself look better without making the world any better. So people naturally tend to over-do it, from a social point of view. The same would hold if you looked at polluting industries: Yes, the pollution is a byproduct of useful production; but from a social point of view, there’s still too much pollution.

Basic economic reasoning suggests that if there
were an easier, cheaper way to tell which employees would be good, at
least some companies would have discovered it by now. Yet degree
requirements remain ubiquitous. So if Caplan is right, the signaling
benefit of college is still a positive and necessary economic force.

The U.S. governments annually heaps about a trillion dollars worth of subsidies on the status quo. So it’s hardly surprising that other certification systems struggle to compete. If anything, this is a massive condemnation of the status quo; if conventional education so great, why does it need such heavy government support?

Subsidies aside, I’m surprised by Noah’s Panglossian attitude. The fact that a more socially efficient approach exists hardly implies that it’s profitable for any one company to adopt it. Most obviously, if students are signaling conformity, it’s easy to get lock-in, because signaling conformity in unconventional ways signals… non-conformity.

But Caplan probably isn’t right. As evidence that college has
a large signaling component, he notes that people who drop out of
college just before graduation receive a much lower wage bump than
people who cross the finish line — a phenomenon known as the sheepskin effect.
“Signaling is practically the only explanation” for this effect, Caplan
declares. But he’s wrong. To be a useful signal, a task should be
difficult to accomplish or very costly — that’s why it separates good
workers from bad ones. But finishing that last semester of school is
neither difficult nor very costly, especially for someone who just
completed seven other semesters.

So say the parents of every college dropout! But both parents and Noah fail to look at school from the point of view of a weak student. One more semester may seem like nothing to those of us who readily finish. But for students who find classes boring and baffling, even the thought of enduring even one more semester of academics is agonizing.

So
the sheepskin effect can’t be effective signaling — it must be
something else. Probably, someone who finishes seven semesters and then
drops out without completing the eighth has some sort of emotional,
motivational or other personal issues that make them unattractive to
employers. But this isn’t signaling, any more than it’s signaling when
employers fire people who come to work with needle tracks on their arms.

An interesting analogy, because people with needle tracks on their arms often hide them – especially if they’re interviewing for a job. The same goes for students inclined to drop out after seven semesters. They know that if they finish, they will partly conceal their “emotional, motivational, or other personal issues” – and profit as a result. And many do precisely that.

Also, if college were largely signaling,
we would expect to see the return to college decline over time, as
companies learn which employees are smart, hardworking and conscientious
from observing them on the job.

Exactly wrong. In order to be “largely signaling,” the signaling component of education has to be long-lasting. If companies quickly adjusted pay to match employee productivity, signaling wouldn’t pay much in present value terms.

Research by Yale University economist
Fabian Lange has shown
that employers learn a lot about their workers after just three years.
So if two employees start out with very similar abilities, personalities
and other characteristics, we’d expect to see the benefit of signaling
be substantially reduced after a few years.

There’s a whole “Employer Learning/Statistical Discrimination” literature on this. I review and critically analyze it in great detail in the book. Quick points:

1. While Noah’s summary of Lange’s work is accurate, several other major papers find slow learning – especially if you read the fine print. Case in point: Arcidiacono, Bayer, and Hizmo’s 2010 piece in the American Economic Journal. While they find very quick employer learning for college graduates, they find slow learning for not only high school grads, but workers with “some college.” In other words, they find slow learning for about two-thirds of workers. And to be part of the well-evaluated one-third, you have to graduate college.

2. Almost all of the work in this literature ignores non-cognitive ability. So even papers that find fast learning really only cut against the naive “education signals IQ” view, not the reasonable “education signals a package of IQ, work ethic, and conformity” view.

It isn’t. A recent paper
by economists Ben Ost, Weixiang Pan and Douglas Webber compares
students at Ohio four-year public universities who just barely make the
grade point average cutoff to stay in college with students who just
barely miss it and are forced to drop out. Since these groups of
students are, statistically speaking, almost exactly the same — the
difference between them is almost entirely a matter of luck — the
difference between them doesn’t depend on who is willing and able to
send a good signal. Looking at the earnings of the two groups seven to
12 years after their initial college enrollment, Ost et al. find that
the lucky kids who managed to stay in school have considerably higher
earnings than those who were kicked out. If college’s value were mostly
signaling, we’d expect to see this wage difference disappear over time,
as employers learned that these two groups of students were effectively
the same. But the gap persists, suggesting that the workers who managed
to stay in college derived something useful from the experience.

This is another good paper, but Noah’s interpretation is only correct if employers rapidly discover and reward true worker productivity. I say they don’t. Even when employers realize they have a bad worker, they routinely (a) wait a long time to get rid of them, and (b) help foist their subpar workers on other employers when they finally do decide to get rid of them – allowing those subpar workers to continue to profit from their misleading credentials.

Caplan
cites psychological research to claim that students don’t remember what
they learn in their college classes, as well as some studies claiming
that college graduates tend to lack basic competence in logical
reasoning and domain knowledge. But more systematic reviews of the
evidence show otherwise. Since 1991, researchers Ernest Pascarella and
Patrick Terenzini have been keeping track of studies on the question of
how college affects students, publishing summaries of the literature in aseries of threevolumes. Overall, they find
that going to college has large and positive effects on students’
cognitive, quantitative and verbal skills, as well as their personal
development.

I’ve read Pascarella and Terenzini cover to cover. Once again, you have to read the fine print. By the authors’ own admission, much of the research they review naively compares freshman and seniors, and attributes the full gain to collegiate learning. Many don’t even bother to correct for attrition!

1. Standard estimates say one IQ point raises income by about 1%. But standard estimates say a year of education raises income by far more than 3%, or even 5%. So there’s still plenty of payoff unexplained by cognitive improvement.

2. As Ceci originally explained, there are strong reasons to think a lot of these IQ gains stem from “teaching to the test,” broadly construed. School may make you a little smarter, but it mainly teaches you to give the kind of answers IQ test-makers are looking for.

The last of these is, in my opinion, overlooked. Most
discussions of college focus on classroom material; very few discuss the
positive impacts of peers and of college life on students’ goals,
motivation and perspective. But these are potentially of crucial importance
to students’ lives. The time that students spend socializing or
partying is partly a form of consumption, but it’s also cementing those
young people’s identity and social relationships in ways that I suspect
will make them much more productive over their lifetime.

Last point: Noah opens his critique by discussing likely sympathizers:

Caplan’s claim is sure to appeal to those who feel that their own higher education was wasted, or who dislike colleges because of liberal campus politics.

But for me, what’s relaxing about this topic is that most people across the political spectrum respond positively. Why? Because they have years of personal experience with education – and my story fits their experience. Indeed, virtually the only people who strenuously object to the signaling story are labor and education economists. Given my strong presumption in favor of experts, this weighs on me. Which is why I spent years reading and writing this book.

READER COMMENTS

Ilverin

Dec 18 2017 at 4:00pm

There’s a small point that I think Noah could have made:

The difference between 7 semesters and graduating is on average larger than the reader might think.
A poor student can fail multiple courses and have to retake them. Theoretically, a student can pay for 7 semesters of tuition and be less than half of the way to degree completion. By dropping out after 7 semesters, a student has put themselves in a group with poor performers.

On a completely separate note, I agree with Bryan: just because something is slightly difficult (graduating college) does not mean that it is at all useful. By graduating college you have revealed that you can do something slightly difficult, which is useful signaling.

Dec 18 2017 at 4:01pm

Excellent Bryan, I hope to see a lot more of these as the book comes out. And hopefully some back and forth from education skeptic skeptics.

The only thing I can say about the book is I hope you go into great detail on the transfer of learning stuff. It seems like that’s the place a lot of people go after when I bring up the possibility that education might be about signalling.

Jim Rose

Dec 18 2017 at 4:08pm

Interesting that the earlier paper by Noah discusses Japanese universities.

I am baffled by why employers hire on basis of university status, as everyone gets an A and truency is rampent. Super tough entrance exam held by employers as well as universities.

Jiro

Dec 18 2017 at 5:38pm

I’m surprised the word “Griggs” does not appear here anywhere.

It’s hard to pick a cheaper, more efficient signal when doing so is barred by law. (Though technically a lot of it is post-Griggs though based on Griggs.)

DeservingPorcupine

Dec 18 2017 at 5:43pm

Even if you take the Stuart Ritchie/Tucker-Drob paper for all that it’s reasonably worth, it isn’t going to help the case for college. (I assume they aren’t claiming that the IQ-boosting effect extends into college since such a claim borders on the absurd.)

Radford Neal

Dec 18 2017 at 8:11pm

“…students at Ohio four-year public universities who just barely make the grade point average cutoff to stay in college with students who just barely miss it and are forced to drop out. Since these groups of students are, statistically speaking, almost exactly the same — the difference between them is almost entirely a matter of luck…”

I don’t think so. The difference is largely a matter of which students have the initiative, intelligence, Chutzpah, etc. to do something to shift their GPA from slightly below the cutoff to slightly above. Something like going to the instructor for one of your courses complaining about the marking on the last test, trying to get another 3 marks, which will push you from C- to C for your final grade. Or just blatantly asking for a higher grade, since otherwise you’ll be kicked out of college, lose your student visa, have to go back to your country where you’ll be killed in a civil war, and so on. (An actual student visa and/or civil war are not essential to this plea…)

DeservingPorcupine

Dec 18 2017 at 8:42pm

A

Dec 18 2017 at 9:33pm

The Ost/Pan/Webber attribution of the pass-fail cutoff to luck is way too aggressive. The severity of consequences incentivizes students to employ gamesmanship and clutch performance to clear that hurdle. It’s a classic absence of evidence is evidence of absence fallacy. Difficulty in measuring outcomes does not mean that something isn’t being measured.

mike davis

Dec 19 2017 at 9:20am

Noah is, of course, correct when he says that if completing the 8th semester and graduating were not especially costly, it wouldn’t be a good signal. But the fact that some people don’t finish the last semester and get a degree almost certainly means that it is costly. A moment of reflection on how many colleges actually operate tells you why. At most places students have a great deal of freedom to take whatever courses they want to take. That means that some students delay taking the challenging and/or uninteresting courses and so may not be anywhere close to the requirements for a degree, even when they have nearly enough credit hours. A full load of calculus, organic chemistry, statistics and a writing-intensive rhetoric class is very expensive.

AnalyticAscent

Dec 19 2017 at 9:57am

Good to see you back Bryan! I have a question regarding research on wage returns from college education.

I’ve been trying to do heavy research on the so-called “college premium” generally phrased as the idea that a BA gets you a million dollars more in earnings over your lifetime than a high school diploma alone.

From what I know so far, these five factors are the most significant in cutting the stated benefits down to size:

Are there any meta-analyses of the research on this topic? What I’m trying to do is gather as many examples of studies that do or don’t mention any of those factors in order to train a machine learning script to recognize if articles or studies related to the alleged wage premium are omitting any of those.

The only expedient way I can think of for gathering enough studies for sample text is to either find a meta-analysis or two, or see if someone’s gathered a list of studies somewhere… Doing NBER searches has been a bit tedious.

Getting enough sample texts that include or omit any of those five things listed is the hard part of what I’m trying to do. But perhaps someone has already done the heavy lifting?

Joe W

Dec 19 2017 at 11:57am

signaling has a clear negative externality: When you signal a little more, you make yourself look better without making the world any better.

This seems wrong. You do make the world better off when you signal, by producing information about yourself which others can use to make more informed decisions.

Dec 19 2017 at 3:29pm

So say the parents of every college dropout! But both parents and Noah fail to look at school from the point of view of a weak student. One more semester may seem like nothing to those of us who readily finish. But for students who find classes boring and baffling, even the thought of enduring even one more semester of academics is agonizing.

Not to mention that a person who has failed calculus 3 times might view a 4th tray as futile.

Also, if college were largely signaling, we would expect to see the return to college decline over time, as companies learn which employees are smart, hardworking and conscientious from observing them on the job.

Doesn’t that just show that the signal is accurate? That is it really helps to pick who will be the better employee.

tim

Dec 19 2017 at 4:28pm

@mike davis:
“…A full load of calculus, organic chemistry, statistics and a writing-intensive rhetoric class is very expensive.”

I agree with your general point about people delaying the tough coursework to the end… but do many schools even require courses like those to graduate?

To graduate with an English major at my top-30 American university I had to take one semester of remedial math and two semesters of science — and that science was the equivalent of reading popular science books, not doing organic chemistry. And no one would ever get a failing grade in a writing course at my school, no matter the quality of their work, as long as they turned it in on time.

David Condon

Dec 19 2017 at 5:03pm

“To be a useful signal, a task should be difficult to accomplish or very costly — that’s why it separates good workers from bad ones. But finishing that last semester of school is neither difficult nor very costly, especially for someone who just completed seven other semesters.”

There is the cost to the student to consider, but also the cost to the employer. If it’s cheap to determine who did and did not graduate, but expensive to determine who finished 3 semesters and who finished 7 semesters, then employers may not distinguish between the 3 semester group and the 7 semester group.

Niko Davor

Dec 19 2017 at 6:54pm

Consider a “hazing” model for education. Hazing doesn’t screen candidates for ability, so it doesn’t signal ability. Hazing screens/signals for the desire to join, the making of a serious commitment and sacrifice to join and to pay deference to the senior members and status hierarchy of the tribe.

Senior K-12 administrator jobs require graduate degrees. Those graduate degrees require students to pay $30k+ in tuition, and commute/attend boring classes for 2+ years. The informal consensus among those who complete graduate education programs is that they don’t teach important skills and don’t really require any particular talent or ability to pass. So they aren’t a useful signal for talent/skill/ability. But they do show that the graduate wanted to join and made commitment and sacrifice to join for years and showed some deference to teachers, faculty, and administrators. That is like an extended hazing ritual. K-12 administrators are central figures in Western education, so this is a particularly relevant example.

Jeff Cotner

Dec 20 2017 at 5:03pm

Not sure where the “standard estimates” come from re: 1% IQ yielding 1% higher income, but I can’t imagine they’re applicable on the upper-end higher education spectrum. Maybe going 10% from 95 to 105 yields only a modest (10%) income change, but going from 132 to 145 (a similar %) would make an enormous difference? On the bell curve of IQ, not all IQ points are the same.

Also, there’s a third factor — beyond “learning” or “signaling”: it’s the self-selection of an unrepresentative sample. Those who choose go go to college — even if they learned nothing there and even if signalling were wholly ineffective — are people who likely value achievement, who care about their futures and careers, and who thus are likely to earn more. Thus higher incomes.

Tom G

Dec 21 2017 at 6:54am

This is the key problem in big company management. Middle managers don’t have a good way to distinguish the good hard workers from the not-so-good hard workers, and the good not-so-hard workers. Especially once they are in management.

We don’t have good measures of internal big-company productivity.

A huge amount of management is CYA & excuse making to the higher middle/upper management, why the project is late, is over budget, is not as good as originally promised.

Once in management, the college educated boot-lickers who know best how to flatter their superiors are more likely the ones who get ahead.

Graduating college is probably a good signal for better boot-licking, and nice power point presentations that non-technical management (good boot-lickers) can understand.

David H

Dec 22 2017 at 7:44am

If Caplan were right then why aren’t employers paying attention to other strong signals of employability which aren’t degrees? For example, I learned that only 5% of all students taking any given MOOC actually finish. If a job applicant has finished several, surely that signals something about how her personal virtues stack up against the mean. If there would be another reliable signal source that she also been appropriately socialized – maybe through Facebook + LinkedIn + FICO – why not hire her? It’s a chance to get a quality worker at a bargain wage. I’m no employer, but it seems like a no-brainer that employers in this data-crunching world should be devoting considerable effort into reading the tea leaves for how to identify valuable employees without degrees. We send out huge clouds of signals every day. Getting good at interpreting these would give employers a huge competitive advantage, and it’s hard for me to believe that simply for being unanimously lazy and conventional, employers would all leave all this money on the table. Come on HR, Moneyball those non-degree applicants!

And of course, once firms start doing this, they create a legitimate end-round for college. The signals they would be reading would still be costly in the technical sense (they strongly prevent you from signaling a virtue that you lack), but many would also be free in the “free beer” sense. To the people working on alt-education: Provided that Caplan is right, it seems we just need a hard to game but easy to read signal source for the three qualities that Caplan says are signaled by college degrees, and suddenly we don’t need college. I’m being uncharitable, but serious in that I think this deserves more exploration.

I was changed a lot by college, much more than the changing I would have otherwise done between 18 and 22. I’m far less of a barbarian thanks to college, study abroad, etc. If I wrote a critique of Caplan, it would focus on how he neglects this de-barbarianizing service for which there aren’t any obvious alternative providers. But I admit that I could have done my current job without this de-barbarianizing, and I wonder whether my employer even notices its extent. Also, colleges graduate many full barbarians, so there’s also that. Though he’s softening a bit recently, Caplan is basically the guy who says that colleges don’t transform students, they merely certify them. I think they do transform students, but unevenly, incidentally and not in a manner that correlates well with the certification. But here too is another opportunity to do an end-run and give young people an alternative, costly (though possibly free as in beer) way to signal they have ceased being barbarians. Let’s hear some ideas!

[Note that David H is not David Henderson. —Econlib Ed.]

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